On a nondescript San Jose street corner, two tough, young men stand guard, semi-automatic pistols at the ready, as a black box of cash is quickly moved from one unmarked vehicle to another.

Welcome to the brave new world of drug deals, where cannabis profits are licensed, well-regulated and taxed — but shunned by most banks. So businesses that sell, process and distribute marijuana legally in California can’t move money electronically.

The central challenge is this: Marijuana is still illegal under federal law. All banks are subject to federal mandates, through deposit insurance and access to the federal payment system.

Despite the state’s legalization of cannabis in 2016, most traditional financial institutions in California won’t touch the estimated $5 billion a year in transactions. Only five places — all credit unions, including one in Santa Cruz and another in Santa Rosa — work with cannabis clients. But these credit unions are all closed to new customers, with long wait lists, and are shrouded in secrecy, reluctant to discuss these accounts.

“We’d like the same banking as any normal company,” said Kaiya Bercow, co-founder and chief executive officer of Utopia, based in Santa Cruz, one of the state’s leading cannabis producers.

Wait-listed for a bank account at the Santa Cruz Community Credit Union, he must protect his business’s cinder block structure with steel bars, cameras and alarms, as well as additional internal and external security measures. Dealing with such vast sums of cash makes it more likely that some will be lost due to mistakes and miscounting, he said. Additionally, every transaction requires double and triple checking, requiring two trusted employees to sign off on each one.

For bank-less businesses, cash is king throughout the supply chain, from seed to sale to tax payments.

Retail dispensaries aren’t able to accept debit or credit cards; instead, customers arrive with pockets full of cash or use internal store-run ATMs. The stores typically use the cash to pay their suppliers — producers, cultivators, manufacturers and distributors — who, in turn, buy their equipment, supplies and services with cash. Employees also are often paid in cash.

Even tax collectors feel the impact. Monterey County’s treasurer has installed high-speed cash counting machines — “the kind you find in the backroom of casinos,” said Monterey County Treasurer Mary Zeeb — in a secure room monitored by surveillance cameras to process payments. Then the money is rushed to a bank.

Every day, fleets of cash-carrying armored vehicles share Bay Area roads with school carpools, construction traffic and weary commuters, moving money from one place to the next.

“You can’t entrust $200,000 to Suzy driving a minivan and expect it is going to get where it needs to go,” said Jeff Breier of Hardcar Security in Palm Springs, whose 20 ex-military drivers move cash and cannabis around the state.

Nationally, there has been a surge in interest among financial institutions, with a total of 486 facilities accepting deposits from marijuana-related businesses, up from about 100 in mid-2014, according to September 2018 data from the U.S. Department of the Treasury’s Financial Crimes Enforcement Network. Of these, 375 are traditional banks and 111 are credit unions. Most only accept accounts from businesses that are based in their community.

In California, while credit unions are currently the only option, the market is likely to expand in 2019, said Tyler Beuerlein of Hypur, a Scottsdale, Arizona, company that provides banking and payments technology to help financial institutions bank cash-intensive businesses like cannabis.

If financial institutions aren’t careful, they risk prosecution from the U.S. Department of Justice for facilitating an illegal business, as well as investigation from the Treasury Department for money laundering.

Under the famed “Cole Memo” issued by the Obama administration’s Deputy Attorney General James Cole, banks in marijuana-legal states gained some protection by doing audits and reporting whatever money is being moved in and out of businesses. Former U.S. Attorney General Jeff Sessions withdrew the Cole Memo, so now there are no formal guidelines to ease banks’ uncertainties. It is unclear what President Donald Trump’s candidate for U.S. attorney general, William Barr, would do if confirmed.

A California-backed bank also looks unlikely. According to a December report by the state treasurer, the state would likely lose money, require $1 billion in capital investments, and face insurmountable federal hurdles if it tried to create its own financial depository.

There are several efforts to change state and federal laws to make it easier to establish banking. On Wednesday”], the Democrat-controlled House Financial Services Committee will hold a hearing to examine the challenges that businesses face in accessing banking services.

In the meantime, financial institutions that want to accept cannabis cash must shoulder the burden of proving that every deposited dollar comes from a state-licensed and regulated activity, said Terry M. Neeley, managing director of West Coast AML Services, a Sausalito-based consulting firm that helps banks with legal marijuana-based customers comply with federal guidelines.

“Each financial institution has an obligation to not only protect itself but the financial sector as a whole from illicit funds entering the system,” he said. “It is very labor intensive to prove compliance.”

The effort just isn’t worth it for the big banks, said Ben Curren of San Jose-based Green Bits, which sells software to track seed-to-sale transactions and complex inventory reporting — essential for a business to gain the trust of a bank.

“If you have assets of trillions of dollars, are you really going to risk it for that industry?” he said. “If you’re Bank of America, the last thing you need is to be doing this. It’s a huge undertaking.”

But credit unions, not-for-profit organizations that exist to serve their members, are community-focused and more willing to assume the risks and responsibilities needed to comply, said Curren. The credit unions protect themselves by conducting routine inspections, audits and deep background checks. They also require proof of state and local licenses and permits.

“It might take three to four hours for a little grocery store on the corner to get a business bank account,” said Neeley. If a cannabis business is accepted by a credit union, “it takes two to three weeks.”

The costs of these audits and other verification are passed on to clients through steep monthly fees, making their services prohibitively expensive for many businesses, said Jim Coffis of Green Trade, a Santa Cruz-based trade association for licensed cannabis businesses.

Because the credit unions don’t want to accept huge amounts of cash, fleets of armored cargo vehicles, hired by the Bay Area’s cannabis businesses, pick up the money, double-count it, check for counterfeits, bundle it in different denominations, and deliver it to the U.S. Federal Reserve in San Francisco.

On one recent morning, a Hardcar Security vehicle drove from Santa Rosa to Salinas and then San Jose, where it transferred heavy Pelican cases full of money to another vehicle. That second car then drove to the company’s vault service, at an undisclosed location, where the money was double-counted, scanned for counterfeits and prepared for deposit to the credit unions.

Driver “Manny” is a former rifleman in the U.S. Marine Corps with tours in Iraq, now living in Sonoma County. His work partner “Greg,” a San Jose native with buff biceps and Batman tattoos, is also a Marine Corps infantry veteran with deployment to Kuwait, Malaysia, Oman, Bahrain and parts of Africa.

“We’re protecting assets,” said Manny. Sometimes it’s cash; other times it’s cannabis. While it’s a different type of security than in the military, “we’re still on the protection side.”

At each dispensary stop, Greg guarded the vehicle, while Manny entered the store, verified the amount of cash, took a photo, got a digital receipt with an invoice, and carried back a 50-pound case. Then they drove down San Francisco’s Market Street to the Federal Reserve Bank to make a deposit.

While onerous, these efforts are the only way to do business by the book in California’s cannabis market — for now.

“The pinnacle to becoming a successful marijuana-related business is to obtain a banking relationship,” said Neeley. “Once they obtain a bank, they’re good to go.”

Lisa M. Krieger is a science writer at The Mercury News, covering research, scientific policy and environmental news from Stanford University, the University of California, NASA-Ames, U.S. Geological Survey and other Bay Area-based research facilities. Lisa also contributes to the Videography team. She graduated from Duke University with a degree in biology. Outside of work, she enjoys photography, backpacking, swimming and bird-watching.